- “Smart city” is a rapidly growing category that provides growth opportunities for a wide range of buyers and investors.
- Powerful, long-term trends and positive sentiment among municipalities undergird the segment’s potential.
- Four recent Harris Williams clients demonstrate the diversity of the segment, as well as the kinds of businesses that provide entry into this dynamic growth opportunity.
Getting Smarter All the Time
As shown in Figure 1, spending on “smart,” IoT-enabled infrastructure is set to surge from roughly $3 billion in 2016 to more than $30 billion by 2024. The vast majority of this spending—$21 billion—is slated for a broad category known as “smart city,” with the remainder going toward smart buildings and smart homes.
Figure 1: Smart City Spending Primed for Growth
Source: Global Market Insights; Statista estimates, 2018
What does smart city mean? There are a wide variety of technologies within the category, from high-speed data networks, to smart transportation, to smart lighting and smart grids (Figure 2).
Figure 2: A Wealth of Smart City Opportunities
Source: Black & Veatch, Smart City/Smart Utility Report 2018
What they all have in common, however, is the use of emerging technology—specifically in sensors and wireless communication—to improve the efficiency and quality of essential services used by urban populations. That could mean traffic lights that respond to and help manage congestion, power generation that shifts to meet changes in consumption, or buildings that automatically optimize lighting based on occupant requirements.
The advances made possible by such technologies will only become more sought after as urban populations continue to rise, straining already-taxed infrastructure to the breaking point. In the U.S., about 83 percent of people live in urban areas. This is forecast to increase to near 90 percent by 2045 (Figure 3).
Figure 3: Urbanization Approaching 90% by 2045
Source: UN DESA, 2018 Revision of World Urbanization Prospects
This projected growth may explain the enthusiasm felt by city leaders for smart city initiatives. As shown in Figure 4, 85 percent say such initiatives are “transformational and will have positive long-term impacts on cities around the world.” Just 15 percent say smart city is “a passing fad without long-term substance.”
Figure 4: Municipalities are Enthusiastic about Smart City
Source: Black & Veatch, Smart City/Smart Utility Report 2018
The Right Time to Get Involved?
Given the forecasted surge in municipal spending on smart city programs, the strong underlying demographic trends behind that surge, and the readiness of many municipalities to embark upon smart city initiatives, the timing could be right for strategic acquirers and private equity investors to get involved.
Recent Harris Williams experience in the space confirms this view, spanning a wide variety of companies that have provided growth opportunities to an equally broad set of buyers and investors. Yet, as with any emerging trend, identifying concrete investment opportunities can be challenging.
The following examples demonstrate the many forms such opportunities can take, while our bankers’ perspectives clarify the key value drivers of each, and what made them great ways to participate in smart city growth.
Trafficware is a leading provider of intelligent traffic solutions (ITS), with integrated software, Internet of Things (IoT) devices and hardware that optimize the flow of motorist and pedestrian traffic for forward-looking municipalities.
The company’s SynchroGreen adaptive traffic control system improves traffic operations around the world, while its Advanced Traffic Management System (ATMS) is used by more than 200 transportation authorities as the cornerstone of their central traffic management systems.
“Trafficware helps communities manage traffic signal operations more effectively,” explains Eric Logue, a director in the Harris Williams Industrials Group. “Its technology can create capacity and reduce congestion without building new roads. As one of their clients says, ‘technology is the new asphalt.’ Trafficware also has an installed network of IoT-enabled hardware that positions it well for emerging smart-city technology, including infrastructure-to-vehicle (I2V) and intelligent traffic management (ITM).”
It’s not just the technology itself that makes the company valuable, explains Andy Leed, a director in the Harris Williams Technology, Media & Telecom Group: “Trafficware also provides cities with data and insights that help them plan. With more people living in urban environments in the future, that will be essential to keeping things running smoothly.”
In 2018, the company was acquired by Cubic Corporation (Cubic), and will be integrated into that company’s Transportation Systems business unit. According to Cubic, the acquisition extends its portfolio of data-driven solutions to reduce congestion, and helps it build a foundation to support connected and autonomous vehicles through smart infrastructure.
As shown in Figure 2, smart electric grids are considered the single most valuable smart-city investment by U.S. municipalities. No wonder: Better balance between energy supply and demand can save money, reduce outages and relieve pressure to increase power generation capacity.
CPower is well-positioned to benefit from this focus on smart grids. The company, supported by its proprietary technology, develops and implements strategies to maximize the revenues generated by distributed energy resource assets (DERs) for leading commercial and industrial customers.
“CPower helps its customers monetize their energy infrastructure,” says Luke Semple, a managing director in the Harris Williams Energy, Power & Infrastructure Group. “That can involve monetization associated with demand response events, energy efficiency projects, or on-site energy storage or generation assets. CPower helps companies generate incremental revenue streams for those assets.”
As Semple explains, CPower creates value by monitoring and controlling its customers’ distributed energy assets in real time, quickly responding to shifts in demand and supply. By doing so, the company also generates value for energy suppliers, says Tyler Dewing, a managing director in the Technology, Media & Telecom Group: “CPower delivers flexible energy resources to grid operators and utilities, who use them to balance supply and demand cost-effectively and sustainably.”
The widespread push for a smarter grid—and by extension, smarter homes—is also driving growth for Comverge. One of the greatest benefits of smart grids is their potential to more closely match energy demand with supply. For instance, smart meters can adjust energy prices up and down during demand peaks and valleys, incentivizing consumers to use less energy or perform energy-intensive tasks during low-demand times. Collectively, such actions can boost the reliability of the grid without adding capacity.
Comverge’s demand response, energy efficiency and customer engagement solutions are central to that goal of better demand management. Through its combination of software, hardware and services, Comverge helps utilities optimize their demand management programs, from participant recruitment and device installation to call center support, control events, and measurement and verification. In fact, Comverge has enrolled and deployed nearly 3 million energy management devices into mass market demand management programs.
In 2018, Harris Williams advised Comverge on its sale to Itron, a global technology and services company with a leading presence in the smart meter market. Comverge was an attractive platform for integration into Itron’s broader demand-side management initiatives.
“The acquisition enables some very innovative ideas to be implemented on a larger scale,” says Semple. “Similar to CPower in the commercial and industrial markets, Comverge helps manage and integrate the increasing base of intelligent energy devices and assets in the residential market, including demand response, solar and energy storage.” Itron followed the Comverge acquisition with the acquisition of Silver Spring, which further bolstered their position in the smart cities market.
“As demand for energy continues to build,” adds Dewing, “advances like this are going to be essential to keeping smart cities running smoothly.”
Plastic Omnium Environment
In addition to consuming more energy, growing urban populations will continue to generate increasing volumes of waste. Facing more stringent regulations, global municipalities will need to find cost-effective and logistically feasible ways to manage this waste and boost recycling. That creates an opportunity for companies able to use new technology to tackle this age-old problem.
Headquartered in Paris, France, Plastic Omnium Environment (POE) is just such a company. The global market leader for comprehensive waste solutions, POE offers a full waste management solution, comprising products, services, and smart cities technology to more than 20,000 customers worldwide.
POE’s unique, holistic waste management system combines container and digital product expertise to make waste management “smart.” The company’s platform uses sensors to track and weigh containers, coordinate trash collection and disposal, and optimize truck routing based on real-time trash volumes.
“In a growing number of cities around the world, POE is making waste management a more intelligent process,” says Jeff Perkins, a managing director in Harris Williams’ Frankfurt office. “In cities like Paris, for example, the company has installed route-optimization equipment on collection vehicles. These are used in conjunction with solar-powered trash receptacles that use fill sensors to notify the city when they’re full. That allows the city to use its resources more efficiently while managing waste more effectively.”
Some forward-looking municipalities have gone even further with POE’s technology. Saint Amandois, France, for instance, has adopted the company’s full range of capabilities, from RFID-enabled containers, to customized truck route management systems, to data collection and billing. The results have been impressive, says Perkins: “Since the implementation, Saint Amandois has reduced landfill costs by 43%, boosted recycling by 50% and saved over €1 million ($1.1 million) per year. More and more municipalities are looking for ways to improve management of their respective waste and recycling efforts.”
With a forecasted 10-fold increase in spending between 2016 and 2024, the smart city opportunity should be on the radar of many market participants. Indeed, the adoption of smart-city technologies is viewed as transformational by municipalities around the world as urban populations continue to grow.
Recent Harris Williams experience in this emergent space confirms the wealth of growth opportunities for a wide range of strategic buyers and investors. Please contact our professionals to learn more.
Published February 2019